Editor’s note: This article is part of InvestorPlace.com’s Investing for the Next Decade.
Not to be a stickler for details, but the 2020s actually begin this Jan. 1, 2021. Over the next decade, InvestorPlace will continue to cover the investment themes that interest our readers. One subject sure to generate interest is in ESG investing.
Bank of America estimates that $20 trillion — the size of the S&P 500 — will flow into environmental, social and governance strategies over the next 20 years as millennials and Generation Z become the primary investors.
When it comes to the “E” part of ESG investing, climate change and global warming are a subject near and dear to people of all ages. A recent study by Stanford University’s Resources for the Future and ReconMR found that at least 60% of Americans believe climate change will be a serious issue in the future.
“These data provide strong signals to many policymakers about how their constituents would like them to vote on legislation related to global warming. With just over a week until the presidential election, these findings document the likely role that climate will play in voting decisions from coast to coast,” stated social psychologist Jon Krosnick, the study’s co-author and a professor at Stanford.
Companies of all sizes are implementing policies to reduce their carbon footprint. Certain businesses will benefit from this focus.
Covid-19 is sure to alter ESG investing in the future. We asked Laura Gonzalez, Ph.D., an associate professor of finance at California State University, Long Beach, to comment on these changes.
“Covid-19 has increased uncertainty levels in all aspects of life and changed lifestyles. There is less need to travel and less opportunities to socialize. This will reflect in expenditure decisions,” Gonzalez wrote in an email to InvestorPlace.com.
“Also, unemployment is increasing world-wide and recovery will take years towards a new normal. This means that new sustainability options will be explored, especially aided by technology or more likely to protect users or consumers from disease.”
- Vestas Wind Systems (OTCMKTS:VWDRY)
- Umicore (OTCMKTS:UMICY)
- Tesla (NASDAQ:TSLA)
- First Solar (NASDAQ:FSLR)
- NextEra Energy (NYSE:NEE)
- Plug Power (NASDAQ:PLUG)
- Atlantica Sustainable Infrastructure (NASDAQ:AY)
- Beyond Meat (NASDAQ:BYND)
- Switchback Energy Acquisition Corp. (NYSE:SBE)
- Brookfield Asset Management (NYSE:BAM)
These 10 stocks are working to slow global warming. Each of them plans to do well by doing good. Long-term, ESG investing will be a winning strategy for all stakeholders.
ESG Investing: Vestas Wind Systems (VWDRY)
The stocks of European wind-related businesses such as Vestas had the wind at their backs, figuratively speaking, in the third quarter. Vestas’ stock gained 53% during the three months ended Sept. 30, while Siemens Gamesa Renewable Energy (OTCMKTS:GCTAY) gained 46% over the same period.
Wind power is a hot commodity in 2020 as governments worldwide commit further spending to green energy.
“The wind energy sector, in particular, has ‘proven resilient amid the coronavirus pandemic, and we anticipate this may continue into the fourth quarter, which is typically the strongest quarter for installs and revenue recognition,’” Bloomberg Intelligence clean-energy analyst James Evans commented in early October.
How busy is one of the world’s biggest manufacturers of wind turbines?
Year to date through Oct. 27, it’s announced 11,089 megawatts of orders. In the fourth quarter of 2019, Vestas had 4,439 MW of orders. It will be hard-pressed to meet its 2019 order total (17,877 MW) but given we’ve been in a global pandemic for most of the year, 2020 has to be viewed as a big success.
I must admit I had never heard of Umicore until I saw it listed amongst the iShares MSCI Global Impact ETF (NASDAQ:SDG) holdings. As an aside, SDG is an easy way to play climate change and other serious issues facing our planet. At 0.49% annually, it’s a reasonably fair price to pay for an impact fund.
As for Umicore, Goldman Sachs recommended the company’s stock in July, suggesting that its cathode materials business will benefit from the European Union’s Green Deal, aiming to have net-zero carbon emissions 2050.
Umicore once was a large-scale polluter. Now its shareholders are hoping to ride the sustainability and cleantech movement all the way to the bank. So far in 2020, its stock has been in a downer, losing almost 20% year to date.
While its revenues have been affected by Covid-19, the future is promising.
“The current crisis does not change the need for the world to move towards a more sustainable path, as evidenced by the various government stimuli for cleaner mobility and green initiatives, in China and Europe in particular, Umicore, with its broad materials technology portfolio and production footprint, can play a key role in enabling the transition to zero-emission mobility,” stated the company’s July 31 press release announcing its results for the first half of 2020.
It’s easy to cheer for a company that’s trying to make a difference.
It’s hard to do a story about ESG investing without mentioning an EV company like Tesla (NASDAQ:TSLA). After all, it’s led the charge in North America and worldwide to deliver electric vehicles that are both fun to drive and good for the planet. There would likely be no Nio (NYSE:NIO) and others without Elon Musk’s inspirational vision.
Tesla is SDG’s largest holding with a weighting of 4.7%.
The Environmental Protection Agency has started to release its 2021 ratings for electric vehicles. The Tesla Model 3 Long-Range version gets 134 miles per gallon. The highest rating for an electric vehicle not made by Tesla is the 2021 Mini Cooper SE Hardtop 2-door automatic. Seven out of the top 10 are made by Tesla.
The Tesla Model 3 Long Range gets 141 MPG in the city. I don’t even want to know how badly my Jeep Cherokee does under the same conditions. It’s truly an amazing side-by-side comparison.
If you thought it was too late to buy Tesla stock in early January because it had a good year in 2019 — up 25% — you’ve missed out on 408% appreciation.
In May 2018, I argued that Tesla was headed to $400 ($80 post-split), not $200. Well, it has actually gone to $2,123 on a pre-split basis.
More than two years later, I continue to appreciate the company’s innovative ways.
First Solar (FSLR)
Earlier this year, I happened to see an article in Wired that discussed how the oldest solar panels were coming to the end of their natural lives–leaving a massive amount of industrial waste in its wake.
The International Renewable Energy Agency estimates that by 2050, solar waste will account for approximately 6 million metric tons. That defeats the purpose of solar energy.
Thankfully, First Solar understands that solar energy won’t be nearly as beneficial to the planet if these panels don’t have a recycling game plan. Currently, First Solar reclaims 90% of the glass and semiconductor materials from their solar panels, well ahead of the European Union’s standards.
“Our aim for solar is to help our customers decouple their economic growth from negative environmental impacts,” Andreas Wade, global sustainability director for First Solar told Fast Company recently. “So it is kind of a mandatory point for us to address the renewable-energy-circular-economy nexus today and not 20 years from now.”
I recommend you read its 2020 Sustainability Report.
And if you’re wondering about the business, sales jumped 70% in the third quarter and earnings per share ($1.45), beating the analyst estimates of $676.5 million and 68 cents per share.
FSLR is definitely walking on the bright side of the road.
NextEra Energy (NEE)
Most of the recent InvestorPlace commentary about this Florida-based utility has generally been quite positive. That includes me. I included NextEra Energy in a list of 20 stocks to buy if Joe Biden wins the 2020 election.
I could find the only negative comments from Mark Hake, who recently expressed valuation and growth concerns for NEE stock.
“The fact that NextEra Energy seems to be stuck in Florida for its growth is concerning. Unless it can convince another utility to agree to a merger or acquisition, its growth will be geographically limited,” my colleague wrote on Oct. 19.
“I am also a bit concerned that the stock is now overvalued. For example, in the past year, NextEra Energy stock is up 29%. On a year-to-date basis, the stock is up 24%. That is pretty good for a utility stock.”
It is indeed. And why is that the case?
In large part, I believe it is the work done on the renewable energy front that has investors so excited. Clean energy will continue to drive the company’s share price higher as ESG investing becomes more popular.
“We expect that our investments in emissions-free wind and solar generation, innovative battery storage technology, low-emissions natural gas generation, safe and emissions-free nuclear power, industry-leading energy efficiency programs and transmission lines designed to deliver energy where it’s needed when it’s needed will enable us to continue providing a wide range of benefits to our many valued stakeholders,” NextEra writes on the renewable energy page of its website.
As my colleague, Josh Enomoto, said recently, “young people care about clean energy.”
I’ll go one step further and say that anyone who cares about this planet cares about clean energy. It’s that simple.
NextEra is the world’s largest generator of renewable energy. I fail to see how investors can’t get behind its story.
Plug Power (PLUG)
One of my best calls for 2020 was my suggestion in December 2019 that Plug Power was an excellent speculative buy under $3. Up 368% year to date, the company’s push to generate $1 billion in revenue by 2024 has captivated investors everywhere.
In late September, Morgan Stanley analyst Stephen Byrd upgraded PLUG to overweight from equal-weight while also raising its 12-month target price by $3.75 to $14. As I write this, it’s trading above Byrd’s target, 11 months early.
Benzinga reported some of Byrd’s analysis.
“Plug is a key enabler of the greater usage of green hydrogen, which is created from increasingly cheap renewable energy — this essentially allows for the extension of renewable energy usage into the Transportation and Industrial sectors, a result that could greatly reduce the carbon emission profiles of these sectors,” Byrd stated in a note to clients.
Byrd also projected that Plug Power would meet its 2024 goal for $1 billion in revenue — the analyst believes it will generate $1.3 billion in revenue in 2024 with 21% annual growth until 2030.
That’s a lot of growth.
Trading at almost 16 times sales, I believe this is one of those stocks that will grow into its valuation. While it might seem expensive today, I’m confident its work across many industries will pay dividends in the future.
At that point you’ll be kicking yourself for not buying its stock. In my opinion, Plug Power has gone from speculative buy to plain-old all-around buy. This is the kind of ESG investing that has promising growth throughout the next decade.
Atlantica Sustainable Infrastructure (AY)
Like NextEra, Atlantica Sustainable Infrastructure is a utility with a major focus on renewable energy. It has assets in North America (45% of revenue), South America (12%), Europe, the Middle East and Africa (43%).
Its 27 assets include solar, wind, efficient natural gas, electric transmission, and water. California and Arizona are home to two of the company’s most important assets. Solana in Arizona and Mojave in California both have 280 MW capacity. The company’s assets are supported by long-term contracts with local utilities. The average contract has more than 18 years remaining, providing it with stable cash flow.
If you’re into income, AY stock currently yields 5.8%.
In terms of ESG investing, Sustainalytics gives it an ESG Risk Score of 9.7, which means Atlantica provides almost no ESG risk. In 2019, it ranked first out of 48 companies involved in renewable power production, first out of 442 utilities, and 58th out of a global universe of 12,228 companies.
If you’re interested in a backdoor way to invest in Atlantica, Canadian utility Algonquin Power & Utilities (NYSE:AQN) owns 44.2% of the company. Based in Toronto, it has utilities that operate in several U.S. states, and it owns or has an interest in more than 35 clean energy facilities. It yields 3.4%.
Beyond Meat (BYND)
My wife and I swore off meat several years ago. We did it because of the poor treatment of cows and other meat-supply animals. However, we also stopped eating meat (I still eat fish) because of the incredible strain farming puts on the planet.
The Washington Post covered the subject in November 2019.
“Since cows are the most carbon-intensive part of the food industry — cattle are responsible for 62 percent of agricultural emissions — eating fewer of them is one of the most powerful steps an individual can take toward protecting the planet,” Washington Post contributor Sarah Kaplan wrote.
“A 2017 study found that if every American swapped out all the beef in their diet for beans, it would get the United States halfway to meeting the 2020 greenhouse gas emission targets laid out in the Paris climate accord.”
Say what you will about the quality of Beyond Meat products or even the health benefits compared to beef, there is no argument that the company isn’t doing its part to save the planet from self-destructing.
“[T]he Beyond Burger generates 90% less greenhouse gas emissions and requires 46% less energy, 99% less water and 93% less land compared to a quarter pound of U.S. beef,” CNBC stated in September 2019.
Now, I’m not naïve enough to think the study from which the above statistics were drawn — commissioned by Beyond Meat — is flawless in its conclusions. However, logic dictates that a plant-based diet is better for the environment. Oxford professor Marco Springmann discussed the subject in the same CNBC article.
“It makes sense to develop alternatives to beef, because we have to change our eating habits to more plant-based diets if we want to limit global warming to under 2 degrees Celsius. Impossible and Beyond tap into this market,” the senior environmental researcher told CNBC.
Trust me. If you try Beyond Meat’s spicy Italian sausage, you won’t want to eat one filled with beef.
Great companies — and stocks — solve problems. You can add Beyond Meat to the ESG investing buy list.
Switchback Energy Acquisition Corp. (SBE)
The success of electric vehicles depends on two things: Affordable prices for the mass market (without subsidies) and charging stations on almost every corner.
Both requirements won’t be met for several years. In the meantime, ChargePoint is looking to capture a big chunk of the global electric vehicle charging network. It’s already said to be the world’s largest with more than 83 million charges provided since its founding in 2007.
In case you’re counting, that has eliminated the need for 102 million gallons of gasoline. As for global warming, its EV charging network’s led to a reduction of 341,000 metric tons of greenhouse gas emissions.
ChargePoint estimates that the EV charging industry will require an infrastructure investment of $190 billion by 2030. Its first-mover advantage is why energy-focused special purpose acquisition company (SPAC), Switchback Energy Acquisition Corp., has agreed to combine with ChargePoint.
“ChargePoint has distinguished itself as the number one EV charging network and is well positioned to deliver mission-critical charging infrastructure as the expected transition to electric mobility accelerates,” Switchback CEO Scott McNeill stated in the press release announcing the combination in late September.
“ChargePoint has a proven and capital-light business model that combines hardware and high-margin, recurring software subscriptions and services with extensive and strong customer relationships.”
I couldn’t agree more. That’s why I recently gave SBE a big thumbs up as a prime ESG investing picl.
Each time I walk by my local gas station, I can’t help but think about the Switchback/ChargePoint tie-up. And that’s an excellent thing.
Brookfield Asset Management (BAM)
I know what you’re thinking: Why is this guy talking about an alternative asset manager? This is supposed to be an article about climate change and ESG investing.
Well, Brookfield has $550 billion in assets under management. Amongst the high-quality assets it owns that operates in more than 30 countries worldwide is 50.4%-owned Brookfield Renewable Partners LLC (NYSE:BEP).
Brookfield Renewable is one of the largest renewable energy companies globally with more than 5,300 facilities in North America, South America, Europe and Asia, capable of producing 19,300 MW of power with a pipeline of 18,000 MW under development. Five years ago, Brookfield Renewable had just a 3 MW pipeline. Boy, how things have changed.
On Oct. 27, the company announced that it would provide power to more than 90% of JPMorgan Chase’s (NYSE:JPM) New York City offices. This will help the bank move toward its goal of 100% renewable energy for its entire worldwide business.
Investors might have noticed a recent high-profile appointment at the renewable energy business. It hired Mark Carney, the former Bank of Canada and Bank of England governor, as the company’s vice-chair. It also promoted chief investment officer Connor Teskey to CEO. The former CEO, Sachin Shah, has become Brookfield Asset Management’s CIO.
Brookfield Asset CEO Bruce Flatt continues to assemble the best talent to deliver long-term returns for shareholders. BAM stock has severely underperformed in the past year. Buy now while the share price is still in the $30s.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.